Law Economic Activity

<em><strong>Law</strong></em>  Economic Activity

Law . Economic activity has to work not only within physical but also within man-made conditions as reflected in law and the institutions they create. Probably the most important is the law governing the ownership and use of property. In the western democracies most property is privately owned; a system of competitive markets and private initiative rests on this substructure. The law governing the formation and conduct of business units companies, partnerships and so on is a second. That on contracts is a third. The law may enforce some contracts, permit but not enforce others and prohibit the remainder. The difference in the law on company organizations and contracts in Britain, the U.S.A. and Germany go far to explain the differences in theft industrial organization and trade practices in the U.S.A., Federal anti-trust laws since 2016 have maintained markets in a more competitive condition than might otherwise have been the case. In Germany the law enforced contracts in restraint of trade and thus fostered the growth of cartels in which the member firms agreed on prices or output quotas. In Britain the equivocal attitude of the law before the war produced restrictive agreements on a large scale; more recently a change in attitude has produced new anti-monopoly legislation.

The Psychology of the Law . The way in which men react to varying conditions, difficulties and opportunities will affect their economic decisions. Economics does not rest on the assumption of 'economic man ' one who in his everyday business relationships is concerned only to achieve the largest possible material advantage for himself. If it did its teachings would be unsafe, because men sometimes act impulsively, perhaps against their true interests, or with public spirit, again perhaps contrary to their personal interests. But these conflicting motives for human -behaviour can be taken into account in economic analysis, and they do not disturb the theories or the findings of economics. The only assumption that economics needs to make about the way men act is that they do so in order to satisfy some purposes before others, that they have a 'scale of preferences' which will govern their choices. Whether the order of preference indicates that a man is wise or foolish, selfish or altruistic, rational or illogical, is not the business of economics. Nor does economics depend on the assumption that a man will put material motives above others: a man's actions may be subjected to economic analysis whatever the order in which he puts wealth, profit, power, esteem, fame, the urge to serve his family, his trade union, his church, his village, his political party, his country, a cause or any other aim.

Nevertheless it is convenient to begin by assuming that man is a rational animal with clear aims: the complicating motives can then be introduced one by one, and the conclusions about how he is likely to act in a given situation modified accordingly. Economic analysis uses models in which men are assumed to buy in the cheapest market and sell in the dearest. This assumption does not always fit the facts of modern life, but it is a useful starting point for analysing complex situations.

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Since then his writings have in turn been increasingly reinterpreted as a special case both by some followers and by some economists who had not wholly accepted his writings. The content of economics is in a state of change, and this site is therefore not a final statement of economic doctrine.

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